There’s more to tech than Apple

Commentary: LinkedIn and Invensense show promise

By

GilMorales and Chris Kacher

PLAYA DEL REY, Calif. (MarketWatch) — It is written that “in the spring, a young man’s fancy lightly turns to thoughts of love.” But we find that springtime may be less about falling in love with stocks and more about doing a bit of spring cleaning that injects some “new merchandise” with fresh potential into investors’ portfolios.

With a change of seasons, comes a chance to do a
little portfolio maintenance. Do you sell in April and go away? Buy and
hold? Move into seasonal stocks? Let MarketWatch’s experts help you
freshen your investments.

Sometimes that means getting rid of old, laggard holdings and recycling that cash into newer, fresher opportunities that are less overplayed and which investors are either unaware or skeptical.

The current rally that began with the New Year has blossomed into a full-fledged trend that has certainly seen the likes of big stocks like Apple, Inc.
AAPL, -0.74%
eclipse the $600 price level, but underneath the surface lies a whole different world of opportunity.

In fact, in any bull cycle, many of the best-performing leaders are stocks that represent “new merchandise,” and the list goes on from stocks like America Online, Inc.
AOL, +1.09%
and Qualcomm, Inc.
QCOM, +0.48%
from 1999, Crocs, Inc.
CROX, +1.32%
and First Solar, Inc.
FSLR, -0.58%
in 2007, and Lululemon Athletica
LULU, -0.06%
and Chipotle Mexican Grill
CMG, -0.41%
which continue today in 2012, all relatively new and unknown stocks at the time they first hit the investment scene.

LinkedIn

Today we are finding similar opportunities in names that have been recent IPOs in the past year or less, and some of these are just beginning to emerge from their initial post-IPO consolidations. One of the most exciting areas of the market in 2012 will no doubt prove to be the social-networking space, set to generate an even more high-frequency buzz when Facebook
FB, -0.38%
goes public in May.

In the meantime, we think professional/career social-networking concern LinkedIn Corp.
LNKD, -1.34%
may be starting a potential upside price move as it emerges from the consolidation it has been working on since coming public last May. LNKD has had nearly an entire year to wring out all the hot-IPO mania that surrounded the stock back at that time, as the weekly chart of LNKD in Figure 1 shows.

Stockcharts.com

These days more investors seem in a mood to short LNKD than buy it, and we think that from a contrarian perspective, this is a positive for the stock. Despite having nearly a quarter of the float sold short, the LNKD bears have been getting their heads handed to them as the stock flirts with and bounces above the $100 price level for the first time since last year. We like LNKD here with the idea that it should hold $95 support on this latest breakout.

Invensense

In 2002, smartphones and laptop computers did not come with cameras as standard equipment. Today we know that they are considered quite standard, and one company back then that benefitted from the “build-out” of camera chips becoming standard equipment on smartphones and PCs was Omnivision Technologies
OVTI, -1.20%

Today, we see another company, Invensense Inc.
INVN, -2.77%
a maker of motion-detector/sensor chips for smartphones, tablets, and other devices, as being analogous to OVTI in that it is well-positioned to benefit from the continued “build-out” of motion-detector/sensor technology that makes it standard equipment on smartphones, tablets, and other devices.

Thus INVN can benefit from the secular adoption of motion-detector/sensor technology just as OVTI did from the secular adoption of camera technology in the broad area of consumer technology products and gadgets.

From a technical standpoint, we first alerted our followers at selfishinvesting.com to the initial pocket pivot breakout in INVN back at the very start of January 2012, as we show in Chart 2, the daily chart of INVN. The stock then went on to issue two more pocket pivot buy signals before most recently breaking out of a short four-week consolidation and issuing yet another pocket pivot buy point on March 23. INVN is a prime example of the strong technical action that is characteristic of these outstanding recent IPOs that emerge as a strong leadership component to any bull market move.

While LNKD and INVN are two examples of “new merchandise” in this market as they emerge from recent consolidations, investors should make a point of making themselves aware of the new merchandise that comes into the stock market in the form of recent IPOs. Monitoring sites like MarketWatch.com for news about new IPOs can keep one abreast of potential new opportunities before they come to market, and if they show strong technical characteristics once they do come to market, they may provide fertile ground for what could to a profitable “spring planting” of investment dollars in your portfolio.

Both LNKD and INVN were IPOs within the last year, with INVN coming public as recently as November 2011. Despite the difficult economic environment there have still been a number of young, entrepreneurial, and innovative companies showing up in this stock market, and we tend to think this is a positive development for the markets and the economy, but most of all for investors as this “new merchandise” provides fresh new crops of emerging investment ideas with big profit potential - history proves it, and 2012 is no different in this regard.

Disclosure: We are long INVN and LNKD.

Gil Morales and Dr. Chris Kacher are both principals and managing directors of MoKa Investors LLC and Virtue of Selfish Investing, LLC, cofounders of www.selfishinvesting.com and co-authors of “Trade Like An O’Neil Disciple: How We Made 18,000% in the Stock Market” (Wiley, August, 2010).

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